Not all …rms export every period. Firms enter and exit foreign markets. Previous research has suggested that these export participation decisions have signi…cant aggregate implications. In particular, it has been argued that these export decisions are important for the comovements of net exports and the real exchange rate. In this paper, we evaluate these predictions in a general equilibrium environment. Speci…cally, assuming that …rms face an up-front, sunk cost of entering foreign markets and a smaller period-by-period continuation cost, we derive the discrete entry and exit decisions yielding exporter dynamics in an otherwise standard equilibrium open economy business cycle model. We show that the export decisions of …rms in the model are in ‡uenced by the business cycle in a manner consistent with evidence presented for U.S. exporters. However, in contrast to previous partial equilibrium analyses, model results reveal that the aggregate e¤ects of these export decisions are negligible. JEL classi…cations: E31, F12.

This paper examines the role of inventories in the decline of production, trade, and expenditures in the US in the economic crisis of late 2008 and 2009. Empirically, we show that international trade declined more drastically than trade-weighted production or absorption and there was a sizeable inventory adjustment. This is most clearly evident for autos, the industry with the largest drop in trade. However, relative to the magnitude of the US downturn, these movements in trade are quite typical. We develop a two-country general equilibrium model with endogenous inventory holdings in response to frictions in domestic and foreign transactions costs. With more severe frictions on international transactions, in a downturn, the calibrated model shows a larger decline in output and an even larger decline in international trade, relative to a more standard model without inventories. The magnitudes of production, trade, and inventory responses are quantitatively similar to those observed in the current and previous US recessions.

Not all …rms export every period. Firms enter and exit foreign markets. Previous research has suggested that these export participation decisions have signi…cant aggregate implications. In particular, it has been argued that these export decisions are important for the comovements of net exports and the real exchange rate. In this paper, we evaluate these predictions in a general equilibrium environment. Speci…cally, assuming that …rms face an up-front, sunk cost of entering foreign markets and a smaller period-by-period continuation cost, we derive the discrete entry and exit decisions yielding exporter dynamics in an otherwise standard equilibrium open economy business cycle model. We show that the export decisions of …rms in the model are in ‡uenced by the business cycle in a manner consistent with evidence presented for U.S. exporters. However, in contrast to previous partial equilibrium analyses, model results reveal that the aggregate e¤ects of these export decisions are negligible. JEL classi…cations: E31, F12.

We show that deviations from the law of one price in tradable goods are an important source of violations of absolute purchasing power parity. Using highly disaggregated export data, we document systematic international price discrimination: at the US dock, low-income countries pay lower prices. This pricing-to-market is about twice as important as local nontraded inputs for differences in tradable prices. We propose a model of consumer search and pricing-to-market in which consumers in low-income countries have a comparative advantage in nontraded, nonmarket search activities. Evidence from cross-country time-use studies and US export prices supports the model. (JEL E31, F14)

We study the e¤ects of tari¤s in a dynamic variation of the Melitz (2003) model, a monopolistically competitive model with heterogeneous establishments and …xed costs of exporting. With costs of starting to export that are substantially larger than the costs of continuing to export, the model matches both the size distribution of exporters and annual transition in and out of exporting of US manufacturers. The tari¤ equivalent of these …xed costs is 30 percentage points. The calibrated model is used to estimate the e¤ect of reducing tari¤s on welfare, trade, and export participation. We …nd sizeable gains to moving to free trade of 1.03 percent of steady state consumption. Along the transition, economic activity overshoots its steady state so that steady state changes in consumption understate the welfare gain to trade reform. Models that abstract from exporter dynamics generate smaller gains to trade and very di¤erent aggregate transition dynamics.